Even before the recent market crash, Britons of all ages have been wondering if their retirement savings would be sufficient for a comfortable existence in their golden years. Today, I’d like to take a closer look at the cohort known as ‘Millennials’. If you were born between 1980 and 1996 (i.e., ages 24 to 40 in 2020), you are considered part of the Millennial generation, also referred to as ‘Gen Y’. Let’s take see how retirement years may shape up for your generation.
Planning for retirement amid the market crash
It is hard to emotionally distance oneself from the alarming headlines about the Covid-19 outbreak as well as the market crash. We all have quite a lot to worry about right now.
So you may find that when trying to balance various life priorities, saving for retirement may easily get pushed to the back burner.
However, deep down many of us know that ‘this too shall pass’ and life will return to ‘normal‘ in some weeks.
The full basic state pension currently stands at £168.60 per week. Do you believe you can live on that amount for the rest of your life after retirement?
Younger savers will increasingly have to rely on their own investments to supplement their state pensions.
Start planning sooner than later
It is important to form a realistic plan for paying for retirement. To start, I’d encourage contributing to your workplace pension scheme if you have one.
Every UK resident should also learn more about the different types of ISAs available to them, with an emphasis on Stocks and Shares ISAs. As you may already know, the deadline for individuals to contribute to the current tax year’s ISA is 5 April.
My Motley Fool colleagues regularly cover FTSE 100 and FTSE 250 shares and funds that you could consider adding to a diversified retirement portfolio. They point out that the despite various downturns and even crashes, over the long run, stock markets in the UK return about 7% to 9% annually, on average.
Research also shows that investors who purchase dividend-growth stocks and reinvest the dividends to buy more shares are likely to see considerable growth in their savings.
Which dividend stocks could you buy from the FTSE 100? At present, tobacco firm British American Tobacco offers a yield of about 8.8%. If you are looking at financial firms, current dividends for Legal & General Group and Lloyds Bank stand at 12.6% and 11.0%. At the lower end, pharmaceutical giant AstraZeneca and Tesco, UK’s largest supermarket chain, pay 3.6% and 3.2% in dividend yield. And their share prices are a lot cheaper than they were at the start of the year.
Time is on your side
Here’s an example of the power of time on your investments:
Let’s assume that you’re now 35 years old with £20,000 in savings and that you plan to retire at age 65.
Despite the market crash, you now decide to invest that £20,000 in a fund and make an additional £2,400 in contributions annually at the start of the year. You’ve 30 years to invest. The annual return is 8%, compounded once a year. At the end of 30 years, the total amount saved becomes £494,883.
Saving £2,400 a year would mean being able to put aside £200 a month or about £7 a day. Might you just be wondering if you should skip that next impulse purchase?
